NVIDIA Corp (NASDAQ:NVDA) could be in for a significant pullback following its upcoming earnings report, according to a Bank of America analyst.

What Happened: Bank of America’s Vivek Arya, a research analyst, has highlighted the possibility of a substantial decline in Nvidia’s stock value, reported Business Insider. Arya’s analysis suggests that the chipmaker’s stock could face an 11% implied post-earnings move, based on bullish buy-side estimates for Nvidia’s Q4 earnings, which are 9% above consensus.

Arya, however, believes that any potential decline would be temporary, driven by supply-side issues rather than shifts in demand and competition. He also expects the stock’s volatility to settle after Nvidia’s GPU Tech Conference in mid-March.

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Despite the potential pullback, Arya maintains that Nvidia remains an attractive stock, with a valuation of 35 times its price-to-earnings ratio, below its median. The company’s stock has seen a significant surge, propelling it to become the third most-valued firm on the S&P 500, surpassing Amazon and Alphabet.

Notably, Wall Street’s affection for Nvidia is evident in the increased exposure to the chipmaker by firms run by prominent investors such as Ray Dalio, Paul Tudor Jones, and Stanley Druckenmiller.

“We think one interpretation of this NVDA move is a mix of fear and greed and indiscriminate investor chase for all things AI. We acknowledge those factors, but believe it understates the company’s solid execution and EPS revisions,” Arya wrote.

Why It Matters: The warning of a potential stock pullback comes amidst a period of high expectations for Nvidia. The chipmaker’s Q4 results, scheduled for Feb. 21, are anticipated to be robust, with buy-side estimates significantly above consensus.

The company’s investment in AI has been substantial, with stakes in companies like Arm Holdings and SoundHound AI. This investment is a part of Nvidia’s broader strategy to strengthen its position in the AI industry.

The company’s stock has also seen a significant surge, jumping 250% through 2023, as its technology has become a central component in the development of artificial intelligence. This has led to questions about whether Nvidia’s mouthwatering rally will continue or hit a wall.

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